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The
Department of Labor (DOL) has further delayed
the effective date of the final regulation on
investment advice.
Background
On January 16, 2009, the DOL released a final
regulation for the provision in the Pension Protection
Act (PPA) that provides for investment advice
to plan participants in participant-directed individual
account plans (like 401(k) and 403(b) plans).
The final regulation, effective March 23, 2009,
allowed investment advice to be provided to plan
participants in two ways:
- Using
a computer model certified as unbiased.
- Through
an adviser compensated on a “level-fee”
basis.
On
January 20, 2009, President Obama’s Chief
of Staff, Rahm Emanuel, issued a memorandum urging
all agencies to delay the effective date of any
regulation issued but not yet effective. In response
to this directive, the DOL delayed the effective
date of the regulation on investment advice to
May 22, 2009, and opened a new comment period.
Further
Delay
On
May 22, 2009, the DOL published a notice that
further delays the effective date of the final
regulation to November 18, 2009. This delay allows
the DOL additional time to evaluate the issues
discussed in the comment letters it received and
to make any needed changes to the final regulation.
What
Does This Mean?
The
final regulation gives rules and clarification
needed for plans to comply with the investment
advice provisions in the PPA. In the meantime,
Representative Rob Andrews (D-NJ) has introduced
the Conflicted Investment Advice Prohibition Act
(see below) which would replace the investment
advice provisions in the PPA. It is unclear at
this time whether the PPA provisions will remain
intact and the DOL will finalize regulations,
or a new law will replace the PPA provisions.
We’ll keep you informed of future developments.
CONFLICTED
INVESTMENT ADVICE PROHIBITION ACT
On April 22, 2009, Representative
Rob Andrews (D-NJ) introduced the Conflicted
Investment Advice Prohibition Act. This proposed
legislation is intended to replace the investment
advice provisions in the Pension Protection Act
of 2006 (PPA).
Independent
Investment Adviser
The
proposed legislation would require that a plan
fiduciary who wants to provide investment advice
to the plan or plan participants must arrange
for an “independent investment adviser”
to provide the advice. The independent investment
adviser would be a fiduciary of the plan because
of the advice they provide.
An
entity can meet the definition of “independent
investment adviser” in two ways:
- Use
of a computer model that meets specific requirements.
- Through
a registered investment adviser, a bank or similar
financial institution (but only if the investment
advice provided is through a trust department
subject to periodic examination), or a registered
representative.
Adviser
Fees or Compensation
The
adviser must receive the same fees regardless
of the investment option chosen. The fees must
be calculated based on one of the following:
- Flat
dollar amount
- Flat
percentage of plan assets
- Per-participant
basis
- Written
agreement
Effective
Date - The proposed legislation would be effective
for plan years beginning one year after the legislation
is enacted. |
